My trend following strategy and experience

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Tue Sep 10, 2019 5:31 pm

willthrill81 wrote:
Tue Sep 10, 2019 4:57 pm
That's because the red line in that graph is for a 100% VTSMX portfolio, not a 60/40. When you run a timing model in Portfolio Visualizer, it automatically also includes a line for buy-and-hold of the timed asset(s).
Opps! I missed that.

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tadamsmar
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Re: My trend following strategy and experience

Post by tadamsmar » Tue Sep 10, 2019 5:41 pm

willthrill81 wrote:
Mon Sep 09, 2019 9:20 pm
For a more realistic comparison, a 60/40 AA would now have an inflation-adjusted balance of $7,032.
Does that $7,032 include rebalancing or not?

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 5:42 pm

tadamsmar wrote:
Tue Sep 10, 2019 5:41 pm
willthrill81 wrote:
Mon Sep 09, 2019 9:20 pm
For a more realistic comparison, a 60/40 AA would now have an inflation-adjusted balance of $7,032.
Does that $7,032 include rebalancing or not?
Yes, annual rebalancing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

nps
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Re: My trend following strategy and experience

Post by nps » Tue Sep 10, 2019 6:29 pm

willthrill81 wrote:
Tue Sep 10, 2019 4:56 pm
nps wrote:
Tue Sep 10, 2019 11:23 am
Do you think there is compelling evidence that trend following in retirement could maintain or increase the SWR over BAH? Or just that its minimization of deep drawdowns may be better psychologically?
The academic study I linked to above found that trend following would have significantly boosted the SWR. The historic improvement in risk-adjusted returns of trend following over BAH has not been merely psychological.
Thanks. I think this was the study and the context for the discussion:
willthrill81 wrote:
Mon Sep 09, 2019 9:08 pm
HomerJ wrote:
Mon Sep 09, 2019 9:07 pm
willthrill81 wrote:
Mon Sep 09, 2019 6:08 pm
But it does seem that trend following in general has been effective in smoothing out returns and avoiding the worst of stocks' drawdowns. For this reason, I believe that trend following might have much more benefit for retirees than accumulators.
No way should a retiree swing from 100% stocks to 0% stocks based on "signals", no matter how well they worked in the past.
Why not? Academic research has found that doing so would have been very useful for retirees.

Also, it is not necessary to go from 100% to 0%. The swing could be from 70% to 30%, for instance.
It looks like that study uses only 10 percent of the portfolio for trend following. Any evidence for the benefit when you "swing from 100% stocks to 0% stocks" as HomerJ puts it (and I understand is your implementation)? Or even slightly more mild like the 70% to 30% suggestion?

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 7:50 pm

nps wrote:
Tue Sep 10, 2019 6:29 pm
It looks like that study uses only 10 percent of the portfolio for trend following. Any evidence for the benefit when you "swing from 100% stocks to 0% stocks" as HomerJ puts it (and I understand is your implementation)? Or even slightly more mild like the 70% to 30% suggestion?
No, they went from 100% to 0%.
Specifically we use the rule of Faber (2007) that if the index is trading above its 10-month moving average then a long position is taken, otherwise a position in cash is held instead.
p. 17
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

nps
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Re: My trend following strategy and experience

Post by nps » Tue Sep 10, 2019 9:15 pm

willthrill81 wrote:
Tue Sep 10, 2019 7:50 pm
nps wrote:
Tue Sep 10, 2019 6:29 pm
It looks like that study uses only 10 percent of the portfolio for trend following. Any evidence for the benefit when you "swing from 100% stocks to 0% stocks" as HomerJ puts it (and I understand is your implementation)? Or even slightly more mild like the 70% to 30% suggestion?
No, they went from 100% to 0%.
Specifically we use the rule of Faber (2007) that if the index is trading above its 10-month moving average then a long position is taken, otherwise a position in cash is held instead.
p. 17
Reading it again, it seems to be only relative to the given BAH position. So if the BAH portfolio was 60/40, trend following would have you swing from 60% stocks to 60% cash, and from 40% bonds to 40% cash.

This is noted on the same page:
The application of trend following sees returns increase by between around 0.2% to 0.3% annually for the 60-40 and 30-70 portfolios

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Tue Sep 10, 2019 9:23 pm

nps wrote:
Tue Sep 10, 2019 9:15 pm
willthrill81 wrote:
Tue Sep 10, 2019 7:50 pm
nps wrote:
Tue Sep 10, 2019 6:29 pm
It looks like that study uses only 10 percent of the portfolio for trend following. Any evidence for the benefit when you "swing from 100% stocks to 0% stocks" as HomerJ puts it (and I understand is your implementation)? Or even slightly more mild like the 70% to 30% suggestion?
No, they went from 100% to 0%.
Specifically we use the rule of Faber (2007) that if the index is trading above its 10-month moving average then a long position is taken, otherwise a position in cash is held instead.
p. 17
Reading it again, it seems to be only relative to the given BAH position. So if the BAH portfolio was 60/40, trend following would have you swing from 60% stocks to 60% cash, and from 40% bonds to 40% cash.

This is noted on the same page:
The application of trend following sees returns increase by between around 0.2% to 0.3% annually for the 60-40 and 30-70 portfolios
Yes, I believe that you are correct.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Lee_WSP
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Re: My trend following strategy and experience

Post by Lee_WSP » Tue Sep 10, 2019 11:49 pm

For anyone curious to see all three plotted:
https://www.portfoliovisualizer.com/tes ... total1=100

Always passive
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Re: My trend following strategy and experience

Post by Always passive » Wed Sep 11, 2019 2:28 am

Has anyone considered using low volatility funds/ETFs with trend following?

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Forester
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Re: My trend following strategy and experience

Post by Forester » Wed Sep 11, 2019 4:44 am

Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
I pair USMV off against rest of the world, using Excel to create a low vol ex-US proxy from EFAV & EEMV. I understand that studies of momentum by convention must use the S&P 500, but I'm trying to generate returns. If a low vol index does not contain lottery stocks or overweight lottery sectors, arguably it's a truer reflection of the broad trend.

It doesn't matter if low vol has slightly lower or higher return than the overall market, low vol tends to hold a higher price when markets sell off, so whipsaws hurt less as you sell higher and buy lower (QQQ & SPY tend to snap back quicker when markets recovers).

nps
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Re: My trend following strategy and experience

Post by nps » Wed Sep 11, 2019 6:11 am

willthrill81 wrote:
Tue Sep 10, 2019 9:23 pm
nps wrote:
Tue Sep 10, 2019 9:15 pm
willthrill81 wrote:
Tue Sep 10, 2019 7:50 pm
nps wrote:
Tue Sep 10, 2019 6:29 pm
It looks like that study uses only 10 percent of the portfolio for trend following. Any evidence for the benefit when you "swing from 100% stocks to 0% stocks" as HomerJ puts it (and I understand is your implementation)? Or even slightly more mild like the 70% to 30% suggestion?
No, they went from 100% to 0%.
Specifically we use the rule of Faber (2007) that if the index is trading above its 10-month moving average then a long position is taken, otherwise a position in cash is held instead.
p. 17
Reading it again, it seems to be only relative to the given BAH position. So if the BAH portfolio was 60/40, trend following would have you swing from 60% stocks to 60% cash, and from 40% bonds to 40% cash.

This is noted on the same page:
The application of trend following sees returns increase by between around 0.2% to 0.3% annually for the 60-40 and 30-70 portfolios
Yes, I believe that you are correct.
On my first comment, the 10 percent trend following concept was actually in a different paper. This studied 50% stocks, 40% bonds, and 10% managed futures. It found that the 4% safe withdrawal rate could be increased to 4.8% when compared to a standard 50/50 portfolio.

Interestingly it also found that a 50% trend following stock and 50% bond portfolio had a meaningfully lower SWR than 4%.

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Forester
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Re: My trend following strategy and experience

Post by Forester » Wed Sep 11, 2019 8:14 am

nps wrote:
Wed Sep 11, 2019 6:11 am

Interestingly it also found that a 50% trend following stock and 50% bond portfolio had a meaningfully lower SWR than 4%.
But this would only be exposed to stocks 35% over the long term.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Sep 11, 2019 9:44 am

Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
You certainly could. Trend following has been found to have favorable results across a wide range of asset classes, including stocks, bonds, commodities, etc. across time and geography.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Wed Sep 11, 2019 10:29 am

willthrill81 wrote:
Wed Sep 11, 2019 9:44 am
Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
You certainly could. Trend following has been found to have favorable results across a wide range of asset classes, including stocks, bonds, commodities, etc. across time and geography.
Is there enough long term data to check out low volatility funds? When I looked very briefly at USMV it only goes.back to 2012.

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willthrill81
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Re: My trend following strategy and experience

Post by willthrill81 » Wed Sep 11, 2019 10:31 am

BlueEars wrote:
Wed Sep 11, 2019 10:29 am
willthrill81 wrote:
Wed Sep 11, 2019 9:44 am
Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
You certainly could. Trend following has been found to have favorable results across a wide range of asset classes, including stocks, bonds, commodities, etc. across time and geography.
Is there enough long term data to check out low volatility funds? When I looked very briefly at USMV it only goes.back to 2012.
I would not personally feel the need to have lots of data about these funds before implementing a trend following approach with them. They are just stocks after all.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Wed Sep 11, 2019 10:53 am

willthrill81 wrote:
Wed Sep 11, 2019 10:31 am
BlueEars wrote:
Wed Sep 11, 2019 10:29 am
willthrill81 wrote:
Wed Sep 11, 2019 9:44 am
Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
You certainly could. Trend following has been found to have favorable results across a wide range of asset classes, including stocks, bonds, commodities, etc. across time and geography.
Is there enough long term data to check out low volatility funds? When I looked very briefly at USMV it only goes.back to 2012.
I would not personally feel the need to have lots of data about these funds before implementing a trend following approach with them. They are just stocks after all.
I like to see a few decades of monthly data (Yahoo history tab) so we differ on this point. I like to see how a few bear markets played out. Of course this does not give complete assurance for the next bear market but I think history is instructive.

Always passive
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Re: My trend following strategy and experience

Post by Always passive » Wed Sep 11, 2019 11:44 am

BlueEars wrote:
Wed Sep 11, 2019 10:29 am
willthrill81 wrote:
Wed Sep 11, 2019 9:44 am
Always passive wrote:
Wed Sep 11, 2019 2:28 am
Has anyone considered using low volatility funds/ETFs with trend following?
You certainly could. Trend following has been found to have favorable results across a wide range of asset classes, including stocks, bonds, commodities, etc. across time and geography.
Is there enough long term data to check out low volatility funds? When I looked very briefly at USMV it only goes.back to 2012.
That is not true. The iShares low volatility ETFs follow the MSCI indices. Thus, if you search the MSCI website, you can find data on most of the iShares low volatility indices since the 80s.

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Forester
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Re: My trend following strategy and experience

Post by Forester » Wed Sep 11, 2019 12:44 pm

USMV is very blue chip... Johnson & Johnson, McDonalds, Microsoft, Mastercard etc. If it's a 2000 or 2008 selloff then USMV will follow suit. USMV should be SPY but a smoother journey which is ideal for trend following.

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BlueEars
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Re: My trend following strategy and experience

Post by BlueEars » Wed Sep 11, 2019 2:15 pm

I will check out the MSCI data when I get back to the US.. Thanks.

aristotelian
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Re: My trend following strategy and experience

Post by aristotelian » Wed Sep 11, 2019 2:31 pm

BlueEars wrote:
Wed Sep 11, 2019 2:15 pm
I will check out the MSCI data when I get back to the US.. Thanks.
For those who want to see it, looks like it shaved about 10% off the drawdown in 2008 and also outperformed the S&P in the 2018 Q4 mini-bear.
https://imgur.com/a/DkUDCnJ

Always passive
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Re: My trend following strategy and experience

Post by Always passive » Fri Sep 13, 2019 11:24 am

BlueEars wrote:
Wed Sep 11, 2019 2:15 pm
I will check out the MSCI data when I get back to the US.. Thanks.
If you do not find the data (you can download it to Excel), write to me privately and I will help you find it.

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Forester
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Re: My trend following strategy and experience

Post by Forester » Fri Sep 13, 2019 12:13 pm

Aha, now I have the MSCI data. Month-end data before the ETFs went live around 2011, which is good enough. Min vol & large cap both exit in Feb 2008 and both re-enter in Nov 2009.

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